Blanket absorption rate
A blanket absorption rate uses one overhead rate across a whole factory or organisation. It is simple and may be adequate where products use resources similarly. It can distort costs when departments have different cost structures or products spend different proportions of time in each department. Departmental rates or activity-based costing can address some of those differences, subject to the quality and cost of the additional data.
Worked example
Total overhead $200,000 divided by 40,000 labour hours gives one $5 rate, although a machine-intensive department may incur much higher overhead per labour hour than an assembly department.
Common mistake
A single simple rate is not automatically inaccurate, and multiple rates are not automatically better without meaningful activity data.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | MA | Direct | September 2026–June 2027 |
| FIA | FMA | Direct | September 2026–June 2027 |